Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, July 13, 1994 TAG: 9407220047
SECTION: EDITORIAL PAGE: A11 EDITION: METRO
SOURCE: JAMES F. HOLMAN, M.D.
DATELINE: LENGTH: Long
Collectively, the revolution can be described as managed care, which comes served as an alphabet soup ranging from PPOs ("Managed Lite") to HMOs ("The Real Thing").
Managed care is also the cornerstone of every serious health-care reform proposal before Congress with the notable exception of the single-payer (Canadian) plan - a revolution of a different flavor. Given that single-payer looks unlikely at this time, managed care will continue to sweep the country with or without health-care reform. (Managed competition, it might be noted, is an expanded version of managed care.)
Traditionally, health care in the United States has been reimbursed on a fee-for-service basis. Dollars flowed from American households through both a private payer-employer (via wages denied or prices charged for goods or services) and through the public payer (via taxes). From the first station they were pumped to the final payer, either an insurance company or a government agency (Medicare, Medicaid). Providers rendered services and submitted the bill to the financing agent. A key feature of this arrangement is that financing has been separate from delivery.
After years of runaway health expenditures, large employer-purchasers concluded this traditional fee-for-service arrangement was not delivering two things they wanted: predictable health-care costs in sync with the rest of the economy, and the assurance of getting value for dollars spent. In a market-driven economy, purchasers ultimately control prices by making choices based on cost and quality. Providers compete based on the value of services they offer. But in the medical marketplace, for reasons too numerous to cite here, this wasn't happening.
Many large purchasers began to heed the words of a physician, Paul Ellwood, often called the father of HMOs, who concluded that the incentives in the fee-for-service system were all wrong. In his view, as long as you reward providers for doing more, more is what you will continue to get.
Purchasers also began to reconsider the idea of risk, which until then had always fallen on their pocketbooks. Employers pay 80 percent of the premium with employees kicking in the other 20 percent. If the cost of care (including insurance company administrative cost and profit) exceeded the premium, next year's premium increased proportionately. So purchasers were always at risk for cost overruns, not providers.
True managed care offers an alternative that changes these dynamics. For starters, the HMO agrees to provide a defined set of services for a stated monthly premium. If the costs of providing that are exceed the premiums, the HMO loses money, putting the HMO - not the purchaser - at risk. What prevents the HMO from simply raising next year's premium? Another HMO. Competition finally becomes a cost-controlling force.
Since financing and delivery of health care are coupled, not separate, HMOs have a more direct link with providers, principally physicians and hospitals. The linkage becomes even stronger when HMOs pass the risk on to providers, holding them accountable for the value of their services in a process termed capitation. Under capitation, providers are no longer paid a fee for each service rendered. They're given a global payment and expected to provide all services necessary. Reimbursement then becomes budget-driven, not cost-driven.
In effect, purchasers are saying to providers, here's what we can afford for health care; with our input, you folks figure out how to meet our needs. The challenge for the HMO is to select quality, cost-effective providers and to reduce unexplained variation and unnecessary care, which drive up costs. As incentives change, the delivery system is redesigned to reward efficiency of care without compromising quality. There is now plenty of evidence from highly penetrated managed-care markets that costs can be reduced substantially without compromising quality.
In this setting, providers are rewarded for keeping people healthy rather than treating their illness. They become responsible for a population (all enrollees) in addition to each individual.
The reflex rap on HMOs is the potential for undertreatment, but fee for service offers the opposite, potential for overtreatment. What's desired is the right treatment, in the right setting, for the right price. Despite a half-dozen, oft-trotted-out anecdotes claiming undertreatment, there is no evidence in the medical literature that quality of care in an HMO is inferior to traditional insurance plans.
A valid consumer concern about HMOs is physician choice. Most HMOs use primary-care physicians to deliver basic care and coordinate hospital and specialty services. All physicians are not members of all HMOs, by choice of either the plan or the physician. Many plans offer a point-of-service option that allows patients to see docs outside their network but with a financial penalty. The choice becomes choice of plan, not always choice of physician.
The trade-off is a plan with more benefits at a lower premium with less out-of-pocket expense. There is usually no deductible to meet, and physician services require a $5 or $10 copayment rather than 20 percent or 100 percent if not covered at all. Most preventive services are covered.
HMOs aren't perfect, and objections are voiced by patients and providers. They are, however, a uniquely American, market-driven "solution," and the market seems to like what it's getting. For five consecutive years, HMO premium rate increases have declined, unheard-of for health insurance. Estimates for 1994 are that 50 million Americans will be enrolled in HMOs. On the West Coast, where the revolution began, 86 percent of those insured in medium and large businesses are in some type of managed-care plan.
Most health economists see managed care as the only market approach with a chance of controlling costs. If it fails, we will likely see a Canadian-European single-payer system by the turn of the century.
James F. Holman, M.D is an infertility specialist and physician adviser with Carilion Health System in Roanoke.
by CNB